Home loan rates expected to fall again

Floating and short term mortgage rates are likely to come down again if, as expected, the Reserve Bank cuts its official cash rate next week.

Thursday, October 16th 2008, 6:22AM

by Maria Scott

Economists expect it could, on Thursday, move the rate by as much as one percentage point. Current market rates are probably already reflecting some of the anticipated cut in the official rate but there is still likely to be some movement in mortgage rates after the Reserve Bank’s next move.

The cheapest rates in the home loan market are to be had over two year terms at present but increasingly economists and advisers are suggesting that borrowers choose floating rates in the expectation that these will continue to fall over coming months as the Reserve Bank implements a succession of cuts. There are already several sub-10 per cent floating rates available.

Action by governments throughout the world to stabilise the banking system – including the deposit guarantee scheme in New Zealand – will, it is hoped, mark the beginning of a recovery. But the banking system will be reshaped by government interventions. Banks will have to account to taxpayers and costs will be under pressure.

Already, some of the cheapest loans in the New Zealand market are going to borrowers who can put down large deposits and this trend will continue. Lenders will be less willing to compete on price and much more interested in signing up, and keeping, low-risk borrowers.

New Zealand’s mortgage market has been unusual in having offered the cheapest borrowing over fixed terms but it is unclear whether that pattern will continue. Several specialist lenders have already withdrawn all their fixed rates.

Homeowners and property investors who can afford to may find that the best move they can make now is to reduce their mortgages. Debt will be a dirty word for some time to come.

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